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Emissions trading has been applied in the European Union (EU) since 2005 when the region introduced its compulsory CO2 emissions trading system (ETS) for power plants and the largest power consumers including those in the chemicals industry. The EU considers ETS to be a key tool in reducing emissions in the region.

Under a cap-and-trade ETS, such as the one present in the EU, companies or production facilities are allocated with a specific emissions limit over a given period. Emitters exceeding their allowance must buy emission credits from the market place. Those using less than their allowance may sell their surplus in the form of credits in the marketplace.

Emissions trading specialists predict that CO2 prices in international markets will be in the range of €30-€40/m.t. ($44.2-$59/m.t.) for the long term.

Some leading players within the chemical industry including Cefic are seeking to secure a global cap-and-trade system for the sector, rather than the existing regional schemes. They say this will avoid distortion of competitiveness within the chemical industry.

There is a growing call among U.S. states for the adoption of a national ETS in the U.S. This has been resisted under the Bush Administration. Japan, among other countries, plans to introduce a national ETS.

European companies subject to ETS until now have been given their allowance for free. The European Commission in early 2008, however, has proposed that all companies subject to the ETS must purchase their emissions credits instead of being given them (CW, Jan. 28, p.8). The commission estimates that auctions for CO2 emission credits could generate revenues of €50 billion /year by 2020. Additionally the commission is proposing that nitrous oxide emissions trading be introduced in the region.

Emissions credits are also granted by the United Nations under the Clean Development Mechanism (CDM), which was introduced in 2003 as part of the Kyoto

Some companies have significantly gained from emissions trading under CDM. Rhodia has received millions of dollars for cutting emissions of nitrous oxide-a material that has an impact on global warming that is 300 times more potent than CO2-at its adipic acid plants in Brazil and South Korea (CW, May 9, 2007).